Ratings agency Fitch has misgivings about Europe’s ability to tackle the sovereign debt crisis. Moody’s, a division of Moody’s Corporation (MCO) and Standard & Poor’s had earlier warned about the failing economic health of the European Union (EU) worsened by the indecision of the political class to address the crisis.

At the recent summit, Europe tried to send positive signals to the market and the world about its sincerity to address the issue. Strong fiscal discipline, stronger economic coordination and the 500 billion euro fund to assist countries in crisis were among the significant measures that were announced. Europe has also agreed to lend 150 billion euros to IMF to shore up its resources. But the concern remains: will all this be enough?

There are differences among countries. For example; Germany appears to be non-committal about its contribution to the fund. Moreover, the EU appears to be powerless without individual countries demonstrating leadership.

The situation is becoming increasingly untenable for countries like Greece (Debt-to-GDP – 143% in 2010 – Eurostat) and Italy (Debt-to-GDP – 119% in 2010 – Eurostat) that are at the tipping point of economic collapse. In terms of external financial help, the deal for Greece involves relinquishing as much as 50% of its debt held by banks.

Major US banks – Bank of America (BAC), Citigroup (C), JP Morgan (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Bank of New York Mellon (BK) and Morgan Stanley (MS) were recently downgraded by Standard & Poor’s. The exposure to the European crisis might be one of the underlying causes for the downgrades. Programs of large-scale retrenchment across the financial services industry have only added to the uncertainty.

According to the Bank of International Settlements, US banks have an exposure of $767 billion to the European debt market. Credit Default Swaps ($518 billion) and direct lending ($181 billion) are major components of this exposure.

The crisis is far from over and Europe needs to be united, show more resoluteness and greater political courage to address the task. “The storm in the Euro area casts a long shadow over the entire global economy,” the IMF chief, Christine Lagarde recently commented.

IMF forecasts a slower global growth rate of 4% for 2011 and 2012. The developed countries will grow even slower at 1.5-2%. Europe has fueled the weak growth forecast for the world and will have to solve the challenge of growth amid austerity.